Russia’s relations with the West have plunged to a new low after President Dmitry Medvedev signed a decree officially recognising two breakaway territories in Georgia as independent states.

"We are not afraid of anything, including the prospect of a new Cold War," said Mr Medvedev, after signing the decree in defiance of the US and Europe. The decision, marking a U-turn for Russian policy, was swiftly condemned by Western leaders who urged Russia to reverse the "highly provocative" decree which violates international law.

The foreign secretary, David Miliband, who is flying to Kiev today (wed) to demonstrate the West’s solidarity with Ukraine – which like Georgia has been invited to become an eventual Nato member – said he was consulting partners to ensure "the widest possible coalition against Russian aggression on Georgia." Although aides would not speculate on possible sanctions against Moscow, Mr Miliband is expected to argue in a speech today that Russia will be judged by its actions and "there will be consequences," said one.

The US secretary of state, Condoleezza Rice, described the decision as "regrettable" and warned that it would be "dead on arrival" at the UN.

The decree accused Georgia of "genocide" in South Ossetia and said that Georgian President Mikheil Saakashvili’s actions had left Russia with no other option but to recognise the independence of both South Ossetia and Abkhazia. "This is a difficult choice, but it is the only chance to save peoples' lives," it read.

Both houses of the Russian parliament on Monday voted unanimously in favour of recognising independence for Georgia’s two breakaway states, but Mr Medvedev was urged by the West to refrain from officially recognising them.

Mr Saakashvili reacted with fury after holding a meeting of his security council and accused Russia of "dismembering" his country. He said: "Russia's decision today confirms that its invasion of Georgia was part of a broader, premeditated plan to redraw the map of Europe."

"Today, the fate of Europe and the free world is unfortunately being played out in my small country," he went on.

The EU is holding an emergency summit on Georgia next Monday. "I don’t see how anyone can look at Russia in the same way after this," said James Nixey, a Russia analyst at the British think tank Chatham House.

But the Russian foreign minister, Sergei Lavrov, painted a picture of a "patient" Russia which had done everything possible over the years to support Georgian territorial integrity. He said the Georgian attack on Tskhinvali on 8 August "changed everything", however, and that "Mr Saakashvili himself buried the territorial integrity of his country".

Sergei Lavrov, presumably emboldened by the weak and uncoordinated international response to Russia since the crisis begun, said he did not think that the move would spell international isolation for his country. He suggested that Western countries need Russia too much for them to be able to afford cutting off links entirely, and effectively told the West to choose between Russia and Georgia.

"National interests and considerations are much more important than saving the face of someone who has discredited himself," said Mr Lavrov.

He added that the Russian side had made it quite clear to French President Nicolas Sarkozy, who brokered the ceasefire agreement, that the status of the two regions would be up for negotiation, and claimed that the French leader "endorsed" this.

The recognition was "absolutely unavoidable... legally, historically, and morally," said Mr Lavrov, who has previously said that the world can "forget about" Georgian sovereignty over the two territories.

There was an outpouring of joy in the capitals of the two breakaway regions, as locals gathered, firing guns into the air and cracking open bottles of champagne. The South Ossetian separatist government released a statement thanking Russia and saying it was ready to develop "friendly relations with all countries" who followed Russia’s example.

There is unlikely to be a long queue of countries lining up to recognise Georgia’s two breakaway states, however. Even Russia’s closest allies in the post-Soviet world, such as Belarus, have remained ambivalent on the Russian invasion of Georgia, and are unlikely to formally recognise the two new "countries."

While the Georgians believe that Russia has been plotting to undermine Mr Saakashvili’s pro-Western government for several years, the intensity of Russia’s response to the Georgian assault on South Ossetia continues to take Tbilisi by surprise. In a private conversation on Tuesday night, one Georgian minister said it would be a "few weeks" before international pressure ensured the full withdrawal of Russian troops from the conflict zones. Now, it looks like Moscow plans to stay there indefinitely.

In an interview with the BBC, Mr Medvedev accused the US of using the cover of humanitarian aide to ship in weapons for the Georgian government.

Some Georgian officials suggested that the decision by Russia could have a profound knock-on effect within its own borders, where Moscow has spent much of the last 15 years fighting a war against a separatist movement in Chechnya.

"This will have very heavy political consequences for Russia," said Georgian Justice Minister Nika Gvaramia. "We will overcome this crisis, I am sure; but what Russia is going to do with its own state – in respect of separatism, which is still a problem in Russia, I do not worry much about it, but I am sure that it will lead to a total collapse of Russia if not today, tomorrow for sure."